Feb-2016

The outlook for transport fuels: Part 1

As demand evolves, as specifications change, and as new fuel opportunities arise, what are the implications for refiners up to mid-century?

GAUTAM KALGHATGI, Saudi Aramco
CHRIS GOSLING and MARY JO WIER, UOP

Article Summary

Global transport will continue to be powered largely by petroleum-based liquid fuels in the next few decades due to their vast production and distribution infrastructure, high energy density and portability. The growth in transport fuel will not be constrained by the supply of oil over this period. The increase in demand will be mostly in the commercial transport sector and the world will need much more diesel and jet fuel in the future compared to gasoline. Moreover, gasoline octane quality needs to increase to enable more efficient spark ignition engines.

This poses significant challenges to the refining industry and is likely to increase the availability of low octane components in the gasoline boiling range. The main challenge for diesel engines is to control particulates and nitrogen oxides (NOx) at reasonable cost without compromising efficiency. This challenge is much easier to meet if diesel engines are run on fuels that do not ignite as easily as diesel fuel, allowing more time for fuel and air to mix before combustion starts. There is great potential to develop gasoline compression ignition (GCI) engines that are at least as efficient, possibly cleaner and cheaper compared to today’s diesel engines, but which run on low octane gasoline rather than diesel.

This article investigates petroleum refining implications of two scenarios: one without and one with the possibility of using a low octane ‘New Fuel’ in new engine combustion systems, such as GCI engines.

The numbers quoted are projections based on the assumptions made. The results suggest that the availability of such new engine technology might enable refiners to reduce capital investments and increase profit margins through better asset utilisation. 

Transport accounts for around 20% of total global energy consumption¹ and is powered essentially by liquid fuels derived from petroleum.^2,3 The demand for transport energy is growing, almost exclusively because of growth in non-OECD (Organisation for Economic Co-operation and Development) countries, and is expected to be around 40% larger than it is today by 2040. ^{2, 3, 4} 

Currently, around 95% of all transport energy comes from oil. This share is expected to be still around 90% by 2040,^2,3 even allowing for the growth of natural gas (NG) in the transport market. This is primarily because global demand for transport fuels is very large and alternative energy solutions are not expected to grow fast enough to take a significant share.⁵ Table 1 shows the recent daily petroleum products demand for early 2015 from the International Energy Agency (IEA).

The growth in transport is not expected to be constrained by the supply of oil, which has more than kept pace with growing demand over the past three decades. At 1980 production levels, there were 29 years worth of oil reserves, and at the end of 2013, there were 54 years worth of reserves.^5,6

However, the demand increase is expected to be heavily skewed towards commercial transport (heavy duty road, air, marine and rail) rather than the passenger car sector.² This is because even though the number of passenger vehicles is projected to double to about 1.8 billion by 2040, the average future passenger car will be lighter and travel shorter distances than today’s average car.

Compared to the commercial sector, there is also much more scope for implementing technologies such as hybridisation to improve fuel economy in small passenger vehicles with driving patterns involving many stop/start events. Hence the total fuel used by this sector, which primarily uses gasoline, might not increase much or even decrease compared to today.

Commercial transport essentially runs on diesel, jet fuel and, for marine, bunker oil. Hence the demand for diesel and jet fuel is expected to increase significantly more than for gasoline in the coming decades.^{2, 7-13} This imbalance in demand growth will be 
made more acute by the pressures to replace high sulphur bunker 
oil with diesel in marine transportation.⁹

Figure 1 is a projection from the World Energy Council (WEC) showing the demand change for gasoline, diesel and jet fuel in the coming decades under their Freeway scenario 7 where market forces are dominant. The line in the middle of the figure shows the ratio of (diesel + jet fuel) to gasoline. This ratio is currently 1.5 (see also Table 1) and is expected to increase to 2.4 by 2040. Under the more regulated ‘Tollway’ scenario of the WEC,⁷ with very aggressive and globally concerted de-carbonisation of the transport sector, this ratio is projected to increase to around 3.9 by 2050.

The refining industry has been aware of the looming demand imbalance and has been preparing a strategy to meet it.^10-13 The US Energy Information Agency (EIA) concluded in 2010¹³ that US refineries could increase distillate production by 4 to 8 percentage points over the typical historical yields of 35% by operating changes and modest capital investments in improved fractionation and catalysts. However, a need for investment in hydrocracking for the future was foreseen.^12,13 Novel solutions such as the oligomerisation of olefinic streams to enhance distillate yield also have been proposed.¹¹ The optimum solutions will clearly be refinery specific¹² and driven by legislation and market forces.

Another approach to mitigate the imbalance in demand growth between gasoline and middle distillates is to change the demand requirements of future engines. There is little prospect of moving aviation from using conventional jet fuel to any significant degree but some compression ignition (CI) engines could move from conventional diesel to NG, particularly in markets such as the US where the shale gas revolution has brought in an era of cheap and abundant gas.

However, the widespread use of gas is likely to be limited by infrastructure issues and NG may have a larger penetration in the heavy duty fleet sector where such issues are more tractable. There also will be geographical factors, due to variations in the price and availability of NG. One projection14 suggests that by 2040, the global transport energy share of NG will increase to 5% from the current level of less than 1%.

Projections allow for some penetration of other alternatives such as biofuels. For instance, the projection considered in Figure 1 assumes that by 2040, the share of transport energy will be ~9% for alternative fuels such as compressed natural gas (CNG) and biofuels. Such projections also assume that there will be significant improvements in the efficiency of internal combustion (IC) engines in the coming decades.   

Development trends in IC engines are likely to have a significant impact on the properties required of future fuels. Moreover, there are opportunities to develop new engine/fuel systems, which can be beneficial from the fuel and engine side, and help to mitigate the demand imbalance. For instance, CI engines running on low octane (RON of ~70) gasoline and with more relaxed volatility requirements compared to current gasoline could be at least as efficient as current diesel engines, but cheaper. This concept, known as gasoline compression ignition (GCI), has been summarised in prior publications.⁵